HIGH COURT OF MALAYA AT IPOH
[CIVIL SUIT NO. 22-51-2002]
- NG BAK SOON
- NG LIAN HUAT
- KIGIAP SDN BHD (PLAINTIFFS)
- LEE CHIN YEN
- TAN HONG CHENG (DEFENDANTS)
LEE SWEE SENG J
5 DECEMBER 2014
Damages – Assessment of damages in lieu of rescission – Whether the Court was to assess damages in lieu of rescission and not damages for breach of a collateral contract – Purposive approach in interpreting Court orders and written judgments – Whether the award of damages in lieu of rescission was nevertheless consistent with the finding of the Court of Appeal of a breach of collateral contract – Whether the plaintiffs’ balancing of factors to be taken into consideration in the assessment of damages in lieu of rescission is reasonable and feasible – Interpretation Acts 1948 and 1967 s 17A – Specific Relief Act 1950, ss 34(1)(a), 37
Collateral contract – Whether there was total failure of consideration and breach of collateral contract – Whether remedy intended by the Court of Appeal was based on equitable compensation such as restitution or common law damages under s 74 Contracts Act 1950 – Whether damages in lieu of rescission is premised on principles of unjust enrichment and restitutio in integrum – Contracts Act 1950, ss 40, 74 – Specific Relief Act 1950, ss 34(1)(a)
The first plaintiff (“P1”), second plaintiff (“P2”) and the defendants (“Ds”) were shareholders and directors in two companies, namely Central Aluminium Manufactory Sdn Bhd (“CAluminium”) and Ji Seng Hong Manufacturing Sdn Bhd (“JSH”). The parties decided to go their separate ways with the mutual unlocking of each other’s interests in CAluminium and in JSH. Accordingly, the parties entered into some 4 agreements (“Composite Agreements”) on 26 January 1999 wherein the plaintiffs (“Ps”) agreed to transfer the whole of their shares in CAluminium to the Ds for an agreed consideration of about RM5.97 million. There was also a collateral agreement in a Letter of Undertaking (“LOU”) dated 12 September 1998 signed by both parties, such that the transfer of shares from the Ps to the Ds in CAluminium (“the first transaction”) would only be possible if there is a corresponding transfer of shares from the Ds to the Ps (“the JSH transaction”).
The first transaction involving CAluminium went through but not the second transaction involving JSH, and in spite of this the Ds proceeded with the necessary restructuring of CAluminium and other subsidiaries (collectively called the “CAM Group of Companies”) for the purpose of listing until it was finally listed under the umbrella entity called CAM Resources Berhad (“CAM”) on 14 March 2002. The Ps sued in the High Court and prayed for rescission of the Composite Agreements and alternatively for damages in lieu of rescission, alongside a further alternative prayer for damages for breach of collateral contract by the Ds. The claim was dismissed in the High Court but was allowed on appeal as the Court of Appeal found that there was a breach of collateral contract by the Ds for failure to execute the JSH Agreements on their part after reaping the benefits of the Composite Agreements. The Court of Appeal in its judgment held that the doctrine of collateral contract should be called in to do substantial justice between the parties and was mindful that an order of damages in lieu of rescission should be substituted instead, because an order for rescission of the Composite Agreements would not be feasible on the facts. The case was subsequently ordered to be remitted back to the High Court for assessment of damages for breach of contract.
There were three main issues before the High Court Judge: (1) whether the Court was to assess damages in lieu of rescission and not damages for breach of a collateral contract as contended by the Ds; (2) whether the award of damages in lieu of rescission was nevertheless consistent with the finding of the Court of Appeal of a breach of collateral contract; and (3) whether the Ps’ balancing of factors to be taken into consideration in the assessment of damages in lieu of rescission is reasonable and feasible to achieve the objective of restoring the Ps to the position they would have been in had the CAM shares been restored to them with effect from the date of the breach with both P1 and P2 being the executive directors of CAM and holding 40% of the shares, and these factors are (a) the expansion of the shares in CAM, (b) dividends in CAluminium from 1999 to 2001 (before CAluminium was acquired by CAM for the listing exercise), (c) dividend of CAM (listed entity) from 2002 to present, and (d) directors’ remuneration from 1999 to present.
Held, awarding the plaintiff’s damages in lieu of rescission with costs:
(1) It was possible to harmonise the order of assessment of breach of collateral contract with that of equitable damages in lieu of rescission based on a purposive interpretation given to the order of the Court of Appeal in the context of the whole judgment and pleadings. This interpretative exercise is pursuant to s 17A of the Interpretation Acts 1948 and 1967 and various cases which similarly adopted the purposive approach when interpreting ambiguous or inconsistent decrees of the Court (See paras 16, 18, 19, 20, 21);
(2) The proposition that a final sealed order prevails against written grounds of judgment of the Court as propounded in Tahan Steel Corp v Bank Islam Malaysia Bhd  2 MLJ 314 must be read in the context of a minority judgment and, since the findings of that minority was made in the context of a specific order by the High Court and there was no discussion on the grounds of judgment, the proposition should not be taken as expressing an universal overriding rule. The Ds are also estopped from asserting that the assessment of damages is confined to normal breach under contract for failure to execute the JSH transaction under s 74 Contracts Act 1950, since the Ds had framed their questions on the basis of the Court of Appeal having erred in awarding damages in lieu of rescission (See paras 26, 27).
(3) An award of damages in lieu of rescission is nevertheless consistent with an award of damages for breach of collateral contract. There was a clear total failure of consideration when looked at from the perspective of the Ds’ failure to perform their part of the collateral contract (JSH transaction), and not from the perspective of the Ps’ receipt of RM5.97million for the transfer of their shares in CAluminium to the Ds. Accordingly, the relief that the Court of Appeal had in mind was the equitable remedy of rescission under s 34(1)(a) Specific Relief Act 1950 together with s 40 Contracts Act 1950 which is based on the concept of equitable compensation rather than common law damages premised on s 74 Contracts Act 1950. Since the effect of rescission is to restore the Ps to status quo ante, an award of damages in lieu of rescission must achieve the same effect and is therefore based on the principles of unjust enrichment and restitutio in integrum. (See paras 31, 33, 38, 40, 43, 44, 45); and
(4) The final sum for damages in lieu of rescission was calculated based solely on the factor of ‘expansion of shares in CAM’ and after deducting an inadvertent addition of 208,990 new shares being 40% out of 553,475 shares to the Ps, when instead it was actually issued to a new investor and not allotted to the Ps. The factor of ‘dividends in CAluminium from 1999 to 2001 (before CAluminium was acquired by CAM for the listing exercise)’ was not accepted as otherwise the calculation of damages in lieu of rescission would take into account a hypothetical situation far removed from the reality of their noninvolvement in the business after the sale of their shares to the Ds in the Composite Agreements. The ‘dividends of CAM (the listed entity) from 2002 to present’ was also rejected as a mode of calculation of damages in lieu of rescission. The Court did not factor in the ‘directors’ remuneration’ towards calculation of the final award of damages because P1 and P2 in not having to serve as Directors were also correspondingly not required to invest time and energy with the hardwork and corresponding headache in running a public listed company, and to peg the price of the enlarged shareholding of the Ps just before listing without subjecting it to the uncertainties that may come with all businesses that are listed and correspondingly without reaping any windfall for no effort that it needed to put into the business should the business become propitiously profitable, would in the circumstances of the case be reasonable, fair and equitable (See paras 48, 53, 58, 67, 69, 73, 74, 82, 84, 85, 86).
Cases referred to
Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd  2 MLJ 500
Berjaya Times Square Sdn Bhd v M. Concept Sdn Bhd  1 CLJ 269
Canson Enterprises Ltd v Boughton & Co (1991) 85 D.L.R. (4th) 129
Clough v London and North Western Railway Co  LR 7 Exch 26
Hong Kong Bank (Malaysia) Bhd v. Raja Letchumi Ramarajoo  4 CLJ 155
Hong Leong Bank Bhd v Staghorn Sdn Bhd  2 MLJ 622
Newacres Sdn Bhd v Sri Alam Sdn Bhd  2 CLJ 833
LSSC Development Sdn Bhd v Thomas Iruthayam  2 CLJ 434
Palm Oil Research and Development Board Malaysia & Anor v Premium Vegetable Oils Sdn Bhd  3 MLJ 97
Sempra Metals Ltd v Inland Revenue Commissioners  3 WLR 354
Sik Hong Photo Sdn Bhd v Ch’ng Beng Choo  3 MLJ 633
Southern Finance Bank Bhd v Yap Kik Seong  1 LNS 523
Tahan Steel Corp v Bank Islam Malaysia Bhd  2 MLJ 314
Target Holding Ltd v Redferns (a Firm) and Another  1 AC 421
Tengku Abdullah v Mohd Latif  2 MLJ 265
World Wide Fund for Nature v World Wrestling Federation Entertainment Inc  1 WLR 445
Legislation referred to
Contracts Act 1950, ss 40, 74
Interpretation Acts 1948 and 1967, s 17A
Specific Relief Act 1950, ss 34(1)(a), 37
For the plaintiffs/ applicant – WSW Davidson (Rabinder Singh, Wan Koon Meng & Amy Tan with him); M/s Rabin & Associates
Lee Swee Seng J
(1) The plaintiffs (Ps) and defendants (Ds) were shareholders in Central Aluminium Manufactory Sdn Bhd (“CAluminium”) with each side holding 40% of the shares and an independent party holding the balance 20%. The 1st and 2nd plaintiffs (P1 and P2) are brothers and they were also directors of the CAluminium together with the Ds. They were into the business of manufacturing and marketing stainless steel wares. Both P1 and P2 also have shareholdings in another company called Ji Seng Hong Manufacturing Sdn Bhd (“JSH”) where collectively they hold 28% share and the Ds collectively another 28% share. The balance 44% was held by some independent parties. JSH was into the manufacturing of plastic moulds and products. P1 and P2 and the Ds were also directors of JSH. P3 is a family company of P1 and P2 of which P2 is a director. D1 is the brother-in-law of P1.
(2) Business was expanding for both companies and plans were afoot to take the companies for listing in the KL Stock Exchange. As it transpired the parties were to go separate ways with the mutual unlocking of each other’s interests in the CAluminium and in JSH.
(3) Some 4 agreements were entered into on 26 January 1999 (Composite Agreements) wherein the Ps agreed to transfer the whole of their shares in CAluminium to the Ds for an agreed consideration of about RM5.97 million. The Court of Appeal had found that there was a collateral agreement in a Letter of Understanding (LOU) dated 12 September 1998 signed by the parties wherein as a result of the transfer of shares from the Ps to the Ds in the CAluminium, the Ds were to transfer their shares in JSH to the Ps and both transactions to be effected simultaneously with the corresponding discharge of the guarantees and securities furnished by them in the companies that they are withdrawing from.
(4) What happened was that the first transaction involving the CAluminium did go through but not the second transaction involving JSH. The Ds proceeded with the necessary restructuring of the CAluminium and other subsidiaries (collectively called “CAM Group of Companies”) for the purpose of listing after the transfer by the Ps of its entire shareholdings to the Ds and it was finally listed on 14 March 2002 under the umbrella entity called CAM Resources Berhad (“CAM”).
(5) The Ps sued in the High Court and by its Statement of Claim dated 20 June 2002, prayed for rescission of the Composite Agreements and also alternatively for damages in lieu of rescission. There was a further or alternative prayer for damages for breach of a collateral contract by the Ds. The High Court dismissed the Ps claim but on appeal the Court of Appeal allowed the Ps’ claim and held as follows:
‘‘ … There is in our view clear evidence that the Composite Agreements and the LSH (sic) Agreement are intended to be interdependent. The Letter of Undertaking points very clearly to the existence of a collateral contract between the parties. The intended nexus and the interdependence of the two sets of Agreements become very apparent. How else can paragraphs 1 and 2 of the Letter of Undertaking be given a rational meaning? We agree with the submission by counsel for the appellants that there is an irresistible inference of mutuality when the Letter of Undertaking is properly considered. We agree with the position that the appellants are not implying terms into the Agreements, but merely relying on the existence of a collateral contract between the parties that the two sets of Agreements are supposed to be interdependent and connected…
 “Thus, upon reviewing the entire appeal record and considering the grounds of judgment of the learned High Court Judge, we find that there has been a breach of contract by the respondents for failure to execute the JSH Agreements on their part, after reaping the benefits of the Composite Agreements which have allowed them to proceed with the listing of CAM. This is a suitable case where the doctrine of collateral contract should be called in aid to do substantial justice between the parties. We are of course mindful that given the course of events which has transpired, particularly the listing of CAM, it is no longer practicable or feasible for the court to order the rescission of the Composite Agreements. Nevertheless, the law allows the court to substitute an order for damages in lieu of rescission in such circumstances….” (emphasis added)”
(6) This application in Enclosure 99 by the Ps is pursuant to the decision and direction of the Court of Appeal as follows:
‘‘ To conclude, we allow the appeal with costs with a further order that the case be remitted back to the High Court for damages to be assessed by the High Court Judge for breach of contract, and such damages as assessed shall carry interest at the rate of 4% per annum from the date of filing of the Writ of Summons until full satisfaction thereof…”
(7) It has fallen on me then to do the delicate exercise of assessing damages in lieu of rescission which the Ds said is actually an assessment of damages for breach of a collateral contract as reflected in the sealed order approved and extracted by both parties with the consequence that the principles and hence the final quantum would be poles apart one from the other.
Whether this Court is to assess damages in lieu of rescission and not damages for breach of collateral contract in the factual matrix presented
(8) It has often been said that a text taken out of context becomes a pretext. The context of a cryptic and concise order as in an assessment of “damages for breach of a collateral contract” must be considered and clarified in the context of the reasoned judgment of the Court of Appeal and in particular paragraphs 8, 10 and 12 reproduced above. The terms in the sealed order is but a summary of what has been discussed and distilled in the full grounds of the judgment of the Court of Appeal. It cannot be denied that the full judgment of the Court of Appeal would disclose the reasoning behind the finding of facts and the reliefs granted. When one has the benefit of that reasoned judgment one should not ignore it to one’s impoverishment and in the process, inviting inconsistency when inherently there was none.
(9) Then there is also the wider context of the Statement of Claim and the submission of the Ps in the High Court which was canvassed further in the Court of Appeal. The whole tenor and thrust of the judgment of the Court of Appeal premised upon its agreement with the submission of the Ps was that of damages in lieu of rescission.
(10) The Court of Appeal found as a matter of fact that there was a collateral agreement such that the transfer of shares from the Ps to the Ds in CAluminium would only be possible if there is correspondingly a transfer of shares in JSH from the Ds to the Ps. It must be understood that the collateral contract lies in the fact that there was running alongside the contract in the first and second transactions a collateral agreement that the first transaction would not go through without the second going through. There was the element of mutuality of promises premised on the mutual unlocking of each other’s interest in the CAM Group of Companies and JSH in a simultaneous share swap. In other words, parties had agreed that if the first transaction goes through then the second transaction must go through such that if the second transaction does not go through, then the first transaction would not be allowed to go through. Without a finding of the above collateral contract, it would be completely justified since the first transaction had gone through to then focus on what is the loss suffered by the Ps because the second transaction did not go through. In such a case, the report of PwC would be relevant assessing the difference between the contract price of the shares and the value of the shares now by taking into consideration some presumptions, estimates and projections.
(11) However, this is not the case of 2 stand-alone contracts where the first was performed and the second was not. It is a case where, if the second was not performed then the first should not have been performed at all. Therefore when there was a breach by the Ds of the JSH Agreement it invariably triggered a breach of the collateral contract for which breach damages must now be assessed. That must not be confused with damages to be assessed for breach of the JSH Agreement which the Court of Appeal did not order. Therefore the Report of PwC on the damages payable to the Ps based on the what the Ps would have gained had the JSH Agreement been performed, would be irrelevant and indeed, missing the point.
(12) Mr Mohanadas for the Ds reiterated their position that the Order of the Court of Appeal pronounced on 13 May 2013 is clear and requires this Court to assess damages for breach of the collateral contract. He submitted with some considerable force that the Court of Appeal plainly and clearly spelt out paragraph 59(7) of the Statement of Claim which is the prayer dealing with damages for breach of the collateral contract. He continued by arguing that in so doing, the Court of Appeal disregarded the rescission-based prayers for damages found in the paragraphs 59(3) and 59(4) of the Statement of Claim. He drove home the point that any contrary suggestion or ambiguity created by the grounds of judgment must give way to the Order, so as to give effect to the plain meaning and intention of the Order.
(13) However one may argue the point, it is after all not an assessment of damages for breach of the transfer of shares by the Ds in JSH, for if it is that, the Court of Appeal could easily have spelt that out. Moreover, if it is that, there would have been no necessity to have found that there was a collateral contract running alongside and indeed connecting the contracts in the first and second transactions. The assessment of damages for breach of the collateral contract was in the context of the current impossibility now of the shares previously transferred by the Ps to the Ds to now be transferred back to the Ps and in reverting back to status quo ante. The shares in question have multiplied, metamorphosed and matured into something substantially superior to what it was when the Ps parted with the whole of it in the first transaction to the Ds, consistent with the fact that a privately owned company is now a listed entity in the KL Stock Exchange. There was the issuance of new shares based on their respective shareholding, there was the restructuring of the 3 subsidiaries in the CAM Group of Companies such that they are all wholly-owned subsidiaries with the holding company being the vehicle that was readied for listing. There were the dividends declared before listing but after the transfer in the first transaction and also dividends declared after listing and there was also to add to the complication the hiving off from the enlarged shareholding, the listed shares for sale to Bumiputra shareholders.
(14) Reading the judgment of the Court of Appeal as a whole, it was not a case of the Court of Appeal ordering damages to be assessed on the basis of the loss suffered by the Ps because the Ds breached their part of the JSH Agreement to transfer their shares to the Ps. If it were so then the Ds would be correct in arguing that one looks purely to what is the loss suffered by the Ps because the Ds did not perform the JSH Agreement.
(15) It was certainly and crucially a case where the Court of Appeal was conscious of the fact that the shares in the first transaction could not now be transferred back to the Ps as in that rescission is not feasible nor practicable that it ordered damages in lieu of rescission. This would not have been necessary had it not been for the fact of the finding of a collateral contract that was breached by the Ds.
(16) In the context of the whole case as presented in the High Court and on appeal to the Court of Appeal, it is not impossible to harmonise the order of assessment of breach of collateral contract with that of equitable damages in lieu of rescission as submitted by learned counsel Mr WSW Davidson for the Ps.
(17) The first approach must surely be to proceed from the premise of internal and inherent consistency of each and every part of the Order being able to comprise a coherent and consistent whole. In so doing, that which is apparently ambiguous is not to be relegated as being repugnant to the whole but that every attempt should be made to subsume and subject the apparent inconsistency to the substantial overarching framework of the Order of Court.
(18) As was observed in the Court of Appeal case of Hong Kong Bank (Malaysia) Bhd v. Raja Letchumi Ramarajoo  4 CLJ 155, history helps to harmonise seeming inconsistency though on hindsight one may say that the Order could have been more happily worded. Background may be alluded to if there is anything blur. It observes as follows at pages 162-163:
‘‘…We are of the view that the only relevant question before us is whether the learned Judge was correct in the interpretation he placed upon the order of the Supreme Court when he struck out the suits. Counsel for the appellant has argued that in the resolution of this question, we ought to confine ourselves solely to the events that transpired between the date of the Supreme Court’s order and the orders made by the learned Judge which are the subject matter of this appeal. On the other hand, respondents’ Counsel has argued that we ought not to be so confined in our review of the background to the suits. He says that we must have regard to the whole history of the case, including those facts adverted to by the Bank.
We think there is merit in the submission made by Encik Hira Singh of Counsel for the respondents. In our judgment, it would be wrong for us to wear the kind of blinkers suggested by the Bank when considering the merits of this appeal. It must not be overlooked that the order of the Supreme Court was made against the background of what had previously transpired in the suits. Can we then shut our eyes to that background when we come to interpret the order of the Supreme Court? We do not think we are entitled to do that.
In taking the course suggested by respondents’ Counsel, for which he cited no authority, we act by analogy with a course a Court takes when interpreting a statute. Ever since Heydon’s case  76 ER 637, Courts are obliged to look at the historical background to a statute in order to ascertain the purpose for which it was enacted. In much the same way – although it is not a statute – do we approach the order of the Supreme Court in this case, to see its purpose.” (emphasis added)”
(19) In the Federal Court case of Newacres Sdn Bhd v Sri Alam Sdn Bhd  2 CLJ 833 at pages 860-861 the same purposive approach was promoted with a proclivity towards harmonizing the apparent inconsistency and taking into consideration the context of the whole judgment as well as the pleadings:
‘‘I have considered the submissions of counsel for both sides. In my view; there is no contradiction in the Supreme Court order dated 9 December 1993 though, for clarity, more appropriate words could have been used in the order. Before explaining how I come to this conclusion, it would be useful to refer to the legal propositions enunciated in two cases which, in my opinion, are of no assistance in construing the Supreme Court order in question.
In re Strand Music Hall Co Ltd  35 Beav 153, Sir John Romily MR observed (158):
The proper mode of construing any written instrument is to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in a deed, unless it be impossible to reconcile it with another and more express clause in the same deed.
Though the above quoted passage related to a deed, the declared principles applies, in my view, equally to a court order.
Next, Topanmal Chhotamal v M/S Kundomal Gangaram & Ors AIR  SC 388. In that case, Topanmal sued the firm, Kundomal Gangaram, and its partners for recovery of money owed by the said firm. Having obtained judgment in his favour, Topanmal levied execution thereon against both the assets of the firm as well as the personal properties of the partners. Upon objection by the partners, the question arose as to whether the judgment entered permitted execution against the personal properties of the partners. Delivering the judgment of the court, Subba Rao J made the following pertinent observation: (390)
At the worst the decree can be said to be ambiguous. In such a case it is the duty of the executing Court to construe the decree. For the purpose of interpreting a decree, when its terms are ambiguous, the Court would certainly be entitled to look into the pleadings and the judgment.
Based on the pleadings and the judgment of the lower court, it was concluded that the execution proceedings could only be levied against the assets of the firm and not against the personal properties of the partners.”
(20) His Lordship Chong Siew Fai CJSS concluded at page 862 as follows:
“Thus, having regard to the pleading, and bearing in mind the need to harmonise, as far as possible, the seeming ambiguity in the said Supreme Court order, I consider that the Supreme Court had decreed a sound and workable order though, it might be argued, that the order could have been better expressed with the choice of more precise words.”
(21) Indeed by way of analogy to interpretation of statute, the purposive approach is to be adopted as promoted in section 17A of the Interpretation Acts 1948 and 1967 as follows:
“In the interpretation of a provision of the Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not provide that purpose or object.”
(22) Such an approach was applied by the Federal Court in Palm Oil Research and Development Board Malaysia & Anor v Premium Vegetable Oils Sdn Bhd  3 MLJ 97 at page 130, where his Lordship Sri Ram JCA (later FCJ) sitting in the Federal Court observed as follows:
“In my respectful view, s. 17A of the Interpretation Acts 1948 and 1967 neatly fits into and is complementary with the third principle in the judgment of Lord Donovan. Hence, the governing principle is this. When construing a taxing or other statute, the sole function of the court is to discover the true intention of Parliament. In that process, the court is under a duty to adopt an approach that produces neither injustice no absurdity: in other words, an approach that promotes the purpose or object underlying the particular statute albeit that such purpose or object is not expressly set out therein. Imposing a tax by means of subsidiary legislation on a person not identified in the parent Act produces an absurd and unjust result and therefore does not promote its purpose or object.”
(23) Where there are clear grounds of judgment, they must readily be referred to. His Lordship Abdul Hamid Mohamed CJ in Hong Leong Bank Bhd v Staghorn Sdn Bhd  2 MLJ 622 at page 636 lamented as follows in the absence of the grounds of judgment:
“…In the absence of the ground of judgment, it is not absolutely clear what it means. However, considering that jurisdiction was the only issue upon which the first Court of Appeal decided the appeals, I can only conclude that what this court meant was…”
(24) As was highlighted by learned counsel Mr Rabinder Singh for the Ps, during the trial at the High Court one of the agreed issues submitted was:
“7. Whether the said representation was a term for the collateral contract alongside the Composite Agreement.”
(25) Subsequently during the course of the trial on 6 May 2008, an issue that was agreed for submission by the Court was to the following effect:
“If liability is made out, and if rescission is not available as an equitable remedy (if which is not admitted) whether the Court can award the plaintiffs damages in lieu thereof. ”
(26) Tahan Steel Corp v Bank Islam Malaysia Bhd  2 MLJ 314 in so far as it lays down the proposition that a final sealed order prevails against the written grounds of judgment of the Court must be read in the context of a minority judgment that it is. As pointed out by Mr Rabinder for the Ps, the findings of the minority was made in the context of the particular case when the High Court had made a specific declaration on the issue and the ground of judgment was not discussed. I agree that this should not be taken as expressing a universal overriding rule. It was later applied in Southern Finance Bank Bhd v Yap Kik Seong  1 LNS 523.
(27) There was also the conduct of the Ds in framing the questions of law when applying for leave at the Federal Court. The questions were framed on the basis of the Court of Appeal having erred in awarding damages in lieu of rescission. It was not raised there that there was an irreconcilable inconsistency between the Order of the Court of Appeal and its full written judgment. As such the Ds are now estopped from asserting that the assessment of damages is now confined to normal breach under contract for failure to execute the second transaction in the transfer of the JSH shares under section 74 of the Contracts Act 1950.
Whether the award of damages in lieu of rescission is nevertheless consistent with the finding of the Court of Appeal of a breach of collateral contract
(28) With respect, there is no merit in the Ds’ submission that as there is no total failure of consideration, then there is no justification for rescission and hence no possibility of an order for damages in lieu of rescission. Apparently learned counsel Mr Mohanadas for the Ds takes the stand that as the Ps had received RM5.97 million as consideration for the transfer of shares in the first transaction to the Ds, then there is no total failure of consideration and the Court of Appeal could not, consistent with the jurisprudence in this area, have ordered damages in lieu of rescission.
(29) In Berjaya Times Square Sdn Bhd v M. Concept Sdn Bhd  1 CLJ 269 at pages 282-283, it was clarified as follows:
“ That said, it is now settled that there is, at common law, a right to rescind a contract in very limited circumstances. In essence, it is the quasi-contractual remedy of restitution in cases where there has been a total failure of consideration. In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd  AC 32, 48, Viscount Simon Lc said:
…in the law relating to the formation of contract, the promise is to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled.
If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled…
 What has to be added to the learned Lord Chancellor’s view is the qualification:
“…that failure of consideration does not depend upon the question whether the promisee has or has not received anything under the contract…but rather whether the promisor has performed any part of the contractual duties in respect of which the payment is due”. (Stocznia Gdanska SA v Latvian Shipping Co  1 All ER 883, per Lord Goff of Chieveley.
 In other words, when deciding whether there is in a given case total failure of consideration, the court must first interpret the promise as a whole and next view the performance of the promise from the point of view of the party in default. The test is not whether the innocent party received anything under the contract . The test is whether the party in default has failed to perform his promise in its entirety. The facts of Stocznia Gdanska illustrate the proposition.”
(30) Section 40 of the Contracts Act 1950 would be relevant here and it would provide as follows:
“When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.”
– Section 40 Contracts Act 1950 (Indian S 39) is to be read with section 34 SRA (Indian S 27) where clearly rescission is allowed for the innocent party for non-performance on the part of the defaulting party.
(31) The total failure of consideration must be looked at from the perspective of the failure of the Ds to perform their part of the collateral contract which consists of their transferring their JSH shares to the Ps. This they failed to perform and so there is a total failure of consideration. It is not in the Ps receiving RM5.97 million for the transfer of their shares in CAluminium to the Ds.
(32) As submitted by Mr Rabinder for the Ps, the Ps gave ‘consideration 1’ by executing the 4 Composite Agreements on 26 January 1996 but the Ds did not execute the JSH Agreement and thus ‘consideration 2’ failed. Thus there was a total failure of consideration on part of the Ds in not executing the JSH agreement and in essence the Plaintiffs were deprived substantially of the whole benefit under the collateral contract, or alternatively that the Ds were in fundamental breach.
(33) The relief that the Court of Appeal had in mind is one under section 34(1)(a) of the Specific Relief Act 1950 which reads:
“When rescission may be adjudged
(1) Any person interested in a contract in writing may sue to have it rescinded, and such rescission may be adjudged by the court in any of the following cases, namely:
(a) where the contract is voidable or terminable by the plaintiff.”
(34) The learned authors Pollock & Mulla had explained page 2644 of Pollock & Mulla Indian Contract & Specific Relief Acts, Twelfth Edition Vol II LexisNexis as follows:
“…Rescission is a specific relief, converse to the relief of specific performance, the object of which is to put parties in status quo…” (emphasis added) and at page 2645:
“A contract may also become voidable by subsequent default of the other party, where the other party has refused to perform or promise wholly, or has created an impossibility, or has failed to perform at the fixed time, time being of the essence of the contract.”
(35) I agree with Mr Rabinder’s submission that when a contract has become voidable at the instance of the Ps, our section 34 of the Specific Relief Act 1950 allows for the equitable remedy of rescission in cases where the Ds have refused to perform the promise wholly or have deprived the Ps substantially of the benefit he would have received under the collateral contract.
(36) Mr Rabinder further submitted that the case of Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd  2 MLJ 500 is of special relevance to the present application, because damages had been ordered to be paid in addition to rescission. It went back to the High Court for assessment of damages and then back to the Court of Appeal. The specific issue before the Court of Appeal was (see page 505C):
“What measures of damages is the plaintiff entitled to recover consequent upon obtaining a decree of rescission of the agreement that he had with the defendant.”
(37) His Lordship Sri Ram JCA (later FCJ) then explained (at page 506E) that:
“…the remedy was invented by the court of Chancery and now finds its place in Chapter IV of our Specific Relief Act, 1950. It has the effect of setting at nought the contract ab initio and not merely as an obligation in futuro. It places the parties on a footing as though a contract has never been made.” (emphasis added)”
(38) I would agree with the Ps that section 40 of the Contracts Act 1950 read together with section 34 of the Specific Relief Act 1950 enables the aggrieved party where the other party is in fundamental breach to resort to the equitable remedy of rescission as provided for under section 34(1)(a) of the Specific Relief Act 1950 and since rescission was not available in this case as explained by the Court of Appeal, damages in equity in lieu of rescission was rightfully awarded to the Ps. In other words, the Court of Appeal was looking at the concept of equitable compensation and not common law damages as the basis of assessment of the latter is premised on section 74 of the Contracts Act 1950. The concept of damages in equity/ equitable compensation is restitutionary in nature.
(39) In Sik Hong Photo Sdn Bhd v Ch’ng Beng Choo  3 MLJ 633 at pages 642-644, the Court of Appeal explained the related concepts of total failure of consideration, fundamental breach and rescission as follows:
“FAILURE OF CONSIDERATION AND FUNDAMENTAL BREACH
 The defendant’s failure to transfer the consideration (the shares) to Madam Ng constitutes a total failure of consideration on the part of the defendant, in so far as the SPA is concerned. The defendant had never parted with the consideration for the property, and so the contract expressed in the SPA attracts the application of the first limb of section 40 (but not the exception thereto). Section 40 merits reproduction in extenso as follows:
- Effect of refusal of party to perform promise wholly
When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promise may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.
 The defendant’s failure or refusal to transfer the shares to Madam Ng on or before the completion date came squarely within the first limb of section 40. Madam Ng has received nothing that she has bargained for in the SPA. There was total non-performance by the defendant of the obligation ie the promise relating to the transfer of the shares to Madam Ng under the SPA. Madam Ng, being the promisee, may put an end to the SPA, and the defendant should not be unjustly enriched under the SPA by retaining the property.
 An illustration of a total failure of consideration is to be found in Mistaria Sdn Bhd v. Evergreen Furniture Industries Sdn Bhd  4 MLJ 99 (HC), where not a single sen has been paid towards the purchase consideration for the sale and purchase agreement of a business and the shareholders agreement.
 The essence of time in the SPA comes under section 56(1) and the failure of consideration is within the ambit of section 40. Section 40 must be read conjunctively with section 56(1) when determining whether the defendant as a promisor has committed a breach of such a nature that goes to the root of the contract ie a fundamental breach: Berjaya Times Square Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v. M Concept Sdn Bhd  1 MLJ 597;  1 CLJ 269, per Zulkefli Makinudin FCJ at p 277D; and per Gopal Sri Ram FCJ at p 286H. The words ‘his promise in its entirety’ in section 40 are singularly significant, as the non-defaulter’s right to repudiate a contract accrues when the defaulter has refused to perform or has disabled himself or herself from performing the whole of the promise: per Gopal Sri Ram FCJ in Berjaya Times Square at p 286A–B.
 Under the SPA, the defendant has the contractual obligation to perform ie to transfer the shares to Madam Ng on or before 31 December 1980. The defendant’s non-performance of that obligation struck at the very root, foundation or substratum of the SPA. The transfer of the consideration is a ‘fundamental term’, a breach of which constitutes a fundamental breach ie the failure by one party (the defendant) to perform a primary obligation which has the effect of depriving the other party (Madam Ng) of substantially the whole benefit which it was the intention of the parties that she should obtain from the SPA: see Photo Production Ltd v. Securicor Transport Ltd  2 WLR 283 (HL) per Lord Diplock at page 294. The defendant’s fundamental breach had deprived Madam Ng of the fundamental benefits under the SPA. That fundamental breach entitled the innocent party (Madam Ng) to rescind the contract and to have the parties restored to a position where they will stand as if the contract (the SPA) had never been made ie the return of the property by way of restitutio in integrum to Madam Ng (see Berjaya Times Square Sdn Bhd at p 281B per Gopal Sri Ram FCJ), and, upon her death, to her estate.” (emphasis added)”
(40) The Ps had also relied on the dicta of Sri Ram JCA (later FCJ) in Tengku Abdullah v Mohd Latif  2 MLJ 265, said at page 325-326 as follows:
“An award of damages in a case where rescission is unavailable also accords with general principles of unjust enrichment. In the words of Lord Wright (Fibrosa Spolka Akcjna v Fairbairn Lawson Combe Barbour Ltd  AC 32 at page 61,  2 All ER 122 at page 135 (HL):
“…it is open to the Court to shape an appropriate remedy. The effect of rescission is to restore the plaintiff to the position he would have been in had the contract not been made. (Snell’s Principles of Equity (28th Ed, 1982) at page 606). An award of damages in lieu of rescission must achieve the same result.” (emphasis added)”
(41) Further in LSSC Development Sdn Bhd v Thomas Iruthayam  2 CLJ 434 at page 441, his Lordship underscored as follows:
“……So in the case of the equitable remedy of rescission, which, when exercised, restores the parties to the same position as though the contract was never made. In other words, there is restitutio in integrum. Where it is impossible to restore the status quo ante, the court may grant equitable compensation……”
(42) In the House of Lords case of Target Holding Ltd v Redferns (a Firm) and Another  1 AC 421 at pages 438-439, Lord Browne-Wilkinson extracted the following statement from the minority judgment of McLachlin J in the Canadian Supreme Court case of Canson Enterprises Ltd v Boughton & Co (1991) 85 D.L.R. (4th) 129 in explaining equitable compensation as follows:
“In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, i.e., the plaintiff’s loss of opportunity. The plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach.” (Emphasis added)”
(43) It would not be presumptuous to say that the Court of Appeal had the above propositions of law in mind as may be found in the Ps’ submission in the Court of Appeal when it held as follows:
“10. We find that there has been a breach of contract by the Respondents for failure to execute the JSH agreement on their part after reaping the benefits of the Composite Agreements which have allowed them to proceed with the listing of CAM. This is a suitable case where the doctrine of collateral contract should be called in aid to do substantial justice between the parties …”
(44) It was clearly not an exercise in the assessment of damages under section 74 of the Contracts Act with respect to the stand-alone breach of the JSH Agreement and the loss suffered by the Ps as a result. It was an assessment of damages in lieu of rescission of the Composite Agreements which should not have been performed as the JSH Agreement was not simultaneously performed. In brief it is based on the principle of unjust enrichment and restitutio in integrum. It restores the Ps to the status quo ante position. The Ps then must be given the full benefit of hindsight as the company did go for listing and indeed that was inexorably in the contemplation of the parties with the unlocking of shareholding and simultaneous share swap agreement in the LOU. The Ds had submitted that listing presupposes and is premised on the performance of the contract and not its rescission but such an approach would be artificial and an affront to the justice of the case when a reasonable expectation of the Ps that could be fulfilled would be a case where the Ps would be allowed to ride the crest of the floatation exercise rather than being punished further by being deprived of a gain in contemplation of the listing.
(45) Taking into consideration the particular matrix of the case, it would not be incorrect to say that an award of damages in lieu of rescission is consistent with an award of damages for breach of collateral contract.
The balancing of factors to be taken into consideration in assessment of damages in lieu of rescission
(46) According to the P’s learned counsel Mr Wan Koon Meng, to achieve the objective of restoring the Ps to the position as they would have been in had the CAM shares been restored to them with effect from the date of the breach, that is, with both P1 and P2 being the executive directors of CAM and holding 40% of the share, compensation of the monetary equivalent has to account for:
- the expansion of the shares in CAM;
- dividends of Central Aluminium Manufactory Sdn Bhd. (“CAluminium”) from 1999 to 2001 (before CAluminium was acquired by CAM for the listing exercise);
- dividend of CAM (the listed entity) from 2002 to present;
- directors’ remuneration from 1999 to present.
The reasonableness and feasibility of these assertions as well as its fallacy and fiction or otherwise shall now be examined.
(a) Expansion of shares in CAM
(47) Mr Wan Koon Meng submitted that the following events resulted in the expansion of the number of shares in CAM, namely;
- An allotment of 522, 475 Ordinary Shares of RM1.00 each thereby increasing the paid up capital of CAluminium and the plaintiff’s entitlement to forty percent (40%) of this allotment;
- In the Listing and Restructuring Exercise, one (1) CAluminium share resulted in the issuance with 9.63 CAM shares;
- Also in the Listing and Restructuring Exercise, there was a Restricted Offer of Sale where a portion of CAM shares were placed on offer to Bumiputra investors;
- CAM had a Bonus Issues Exercise where every holder of five (5) CAM shares gets one (1) CAM share; and
- Finally, CAM had a Share Splitting Exercise where every one (1) CAM share was split into four (4) CAM shares.
The detailed computations are found in Enclosure 121 Exhibit NBS-9 (the Second Affidavit in Support dated 29 April 2014) of the plaintiffs, in items (1) to (7).
(48) At the stage of the Composite Agreements the paid up capital of CAluminium was RM2,500,000. The Ps collectively had 1,000,000 shares in CAluminium at that material time which represented 40% shareholding of CAluminium. I have no problem accepting the fact that the initial 1,000,000 shares of the Ps in CAluminium representing 40% of the shareholding of CAluminium had increased in 1 December 2000 with the allotment of 522,475 Ordinary Shares of RM1.00 each increasing the paid up capital of CAluminium to RM3,022,475.00. Of these 522,475 additional allotment of Ordinary Shares the Ps were entitled to 208,990 Ordinary Shares based on their 40% shareholding. The details are found at Tab 1 and 2 of Enclosure 121 Exhibit NBS 9 Tab 1 and 2.
(49) With this increased in shareholding the Ps had 1,000,000 + 208,990 = 1,208,990 shares in CAluminium before listing.
(50) In the restructuring exercise with respect to the listing, the entire shareholding of CAluminium was acquired by CAM. The shareholders of CAluminium were paid with shares in the listed company, CAM, using a multiplier of 9.63. Therefore the following calculations will show the number of shares that the Ps would have in the enlarged entity called CAM to be listed:
1 CAluminium share was issued with 9.63 CAM shares.
1,208,990 CAluminium shares will be issued with:
1,208,990 X 9.63 = 11,637,934 CAM shares
Hence the Ps would have 11,637,934 CAM shares.
The price just before listing as stated in Enclosure 121 Exhibit NBS 9 Tab 3 which is RM1.36 X 11,637,934 = RM15,827,590.24.
(51) The above can be seen in the Listing Prospectus at paragraphs 5.1.3(b) at pages 30 and 31 which reads:
“The Acquisition of CAluminium
CAM entered into a conditional share sale agreement on 29 December 2000 and a supplemental agreement on 28 December 2001 with the vendors of CAluminium for the acquisition of the entire issued and paid share capital of CAluminium, comprising 3,022,475 ordinary Share of RM1.00 each, for a total purchase consideration of RM39,611,117 to be satisfied by the issuance of 29,097,000 new shares at approximately RM1.36 per Share. The details of the acquisition are as follows:
|Shareholdings in |
|Vendors||No for Ordinary Shares of RM1.00 each held||% held||Purchase consideration||New shares|
|Lee Hong Cheng||1,167,500||38.63||15,301,775||11239,000|
|Tan Hong Cheng||917,500||30.36||12,025,935||8,833,00|
|Hia Wan Kika||415,000||13.73||5,438,606||3,995,000|
The purchase consideration of RM39,611,117 was arrived at based on the audited NTA of CAluminium as at 31 December 2000 of RM32,404,637 and after adjusting for the higher market value of CAluminium’s landed properties as approved by the SC.”
(52) It would be reasonable to suggest that if at that stage the Ps would want to divest the whole of their interest in CAM then that is the price at which they are to be paid bearing in mind that the price of RM1.36 per share was fixed by the merchant bankers for the purpose of listing and as stated in the Listing Prospectus at paragraph 5.1.3(b) the price was arrived at based on the “audited NTA of CAluminium as at 31 December 2000 of RM32,404,637 and after adjusting for the higher market value of CAluminium landed properties as approved by the Securities Commission.” This was prepared for public consumption and with no baggage of litigation in mind and thus qualified to be a truly independent valuation of the shares for the purpose of listing.
(53) As the Ps had already received the sum of RM5.97million from the sale of their block of shares in CAluminium, it would be reasonable to deduct this from RM15,827,590.24 (that is RM15,827,590.24 – RM5,970,000 = RM9,857,590.24) yielding the sum of RM9,857,590.24. That would be a rough and reasonable calculation of what the Ps had lost had they held onto their shares as if they had participated in the listing exercise and a guide that can be used to assess damages in lieu of rescission. Such an approach does not suffer from the various events that have happened to the shares subsequently which brings in the element of uncertainty arising from various permutations and possibilities and not forgetting the element that had the Ps and Ds gone for listing together, the Ps would also be expected to be involved in the running and management of the listed entity to yield the dividends and the profits.
(54) However the Ps had argued that as the Ds had to place 2,530,000 of their CAM shares under the Restricted Offer of Sale then the Ps too would have to place 2,530,000 of their CAM shares under the Restricted Offer of Sale thus giving the Ps a reduced shareholding (11,637,934 a 2,530,000 = 9,107,934 CAM shares) and liquid proceeds of RM3,491,400 ((2,530,000 X RM1.38 = RM3,491,400).
(55) Thus, when it was argued by the Ps that one needs to take into account the requirement of a Restricted Offer of Sale where a portion of CAM Shares were placed on offer to Bumiputra investors, the price at which the sale took place of RM1.38 per share with 2,530,000 shares being placed for such a sale, one ventures into the realm of uncertain possibilities. Assuming that the Ps had decided to sell the whole of their expanded shareholding then to the Ds, it can then be argued by the Ds that it was the Ds’ portion of the shares that they have hived off for sale to Bumiputra investors and not that of the Ps, as being in control of the listed entity they can decided which portion is to be hived off. It would be reasonable for the Ds having a controlling interest in CAM to decide to the requisite number of shares under the Restricted Offer of Sale and to reap the benefits that flow from such a sale.
(b) Dividends of CALuminium before Listing
(56) It was argued by the Ps that from 1999 to 2001 dividends were declared by CAluminium before CAluminium was acquired by CAM for the listing exercise in 2002. As such the Ps are entitled to these dividends of RM3.3 million which detailed computations appear below as found in Enclosure 121 Exhibit NBS 9 items 9) to 11):
“9) Financial Year End 31/12/1999
When the Plaintiffs are returned to the position of owing 1,000,000 shares in CALuminium which represents 40% of the paid up capital of CAluminium, the dividends declared and due to the plaintiffs are:
First Interim Dividend of 72% (less 28% tax)
Date of Payment on 15/06/1999 RM1,296,000.00
Second Interim Dividend of 110% (less 28% tax)
Date of Payment on 31/12/1999 RM1,980,000.00
[SEE: CAluminium’s Financial Statements
F.Y.E. 31/12/1999, Pages 1 &2]
40% of RM 1,296,000.00 = RM 518,400.00
40% of RM 1,980,000.00 = RM 792,000.00
Hence, the total dividends due to the Plaintiffs for F.Y.E 31.12.1999 are RM 1,310,400.00
10) Financial Year End 31/12/2000
When the plaintiffs are returned to the position of owning 1,000,000 shares in CAluminium which represents 40% of the paid up capital of CAluminium, the dividends declared and due to the Plaintiffs are:
Interim Dividends of 166.17% (less 28% tax)
Date of payment on 15/03/2001 RM 3,000,060.00
[SEE: CAluminium‟s Financial Statements
F.Y.E. 31/12/2000, Page 1]
40% of RM3,000,060.00 = RM1,200,024.00 RM1,200,024.00
11) Financial Year End 31/12/2001
When the plaintiffs are returned to the position of owning 1,000,000 shares in CAluminium which represents 40% of the paid up capital of CAluminium, the dividends declared and due to the Plaintiffs are:
Interim Dividends of 109% (less 28% tax)
Date of payment [undetermined] RM 1,962,000.00
[SEE: CAluminium’s Financial Statements
F.Y.E. 31/12/2001, Page 1]
RM1,962,000.00 = RM784,800.0 RM784,800.00”
(57) The basis for taking the dividends that would have been declared for 1999 to 2001 was because under Clause 4.2(c) of each of the Composite Agreements the dividends of 1998 had been taken into account in calculating the share price. The clause reads:
“The purchase price of the Sale Shares is calculated on the basis of the Vendor’s entitlement out of (a) the net tangible assets of CA (including CAM and CM) derived from the Accounts of the same and (b) the estimated 1998 first half (from 1st January to 30th June) profit thereof agreed upon by the parties hereto in the sum of Ringgit Malaysia One Million (RM1,000,000.00) less 28% tax deduction amounting to the net sum of Ringgit Malaysia Seven Hundred and Twenty Thousand (RM720,000.00) only and (c) the deduction of the sum of Ringgit Malaysia Two Million Six Hundred and Six Thousand and Four Hundred (RM2,606,400.00), being dividends already paid out by CA to all its shareholders sometime in March,1998.” (emphasis added)”
(58) It must not be forgotten that the inverse would hold true, in that if the dividends for the year 1999 to 2001 are taken into consideration then the share price would not be the same. There is then the uncertain element of no dividends being declared depending on the policy of the Board then and the confirming decision of the shareholders then who would be the Ds. One can then further argue that the share price would be different based on accumulated profits for the year 1999 to 2001. But then again the Composite Agreements had been signed with an agreed share price and one must consider also the fact that after sale and the resignation of P1 and P2 as directors, the Ps were no longer involved in the management of the companies and the running of the business and their time released from such an involvement would then be available for them to channel into other enterprise to generate income for them. Thus by insisting that dividends paid before listing for 1999 to 2001 have to be taken into calculation of the damages in lieu of rescission would be to take into account a hypothetical situation far removed from the reality of their noninvolvement in the business after the sale of their shares to the Ds in the Composite Agreements.
(59) At any rate the adjustment in price had already been taken into account in the profitability of CAM leading to its listing as its price at RM0.96 per share of the Ps’ share in CAluminium had risen to RM1.36 at point of valuation for the listing exercise in the Listing Prospectus.
(c) Dividends of CAM (the listed entity) from 2002 to present
(60) The Ps also argued that they are entitled to hold on to their shares until the present and as such they would be entitled to the dividends declared like any shareholder in a public listed company. The calculation of the dividends declared for the financial year 2002 to 2010 as appearing in Enclosure 121 Exhibit NBS 9 at items 12) to 16) is reproduced below:
“DIVIDENDS OF CAM
Financial Year End 2002
First and Final Dividend of 8% (less 28% tax)
At this material time, the Plaintiffs will have 9,107,934 CAM Shares
[SEE: paragraph S(iv)]
The total paid up capital of CAM consists of 41,000,000 shares.
|[SEE: CAM Report and Financial Statements for F.Y.E. 31/12/2003, Page 13]|
Financial Year End 2003
First and Final Dividend of 4% (less 28% tax)
At this material time, the Plaintiffs will have 9,107,934 CAM Shares
[SEE: paragraph S(iv)]
The total paid up capital of CAM consists of 41,000,000 shares.
|[SEE: CAM’s Annual Audited Accounts for F.Y.E. 31/12/2004, Page 12]|
Financial Year End 2004
First and Final Dividend of 2% (less 28% tax)
At this material time, the Plaintiffs will have 10,929,521 CAM Shares
[SEE: paragraph 6]
The total paid up capital of CAM consists of 49,200,000 shares.
|[SEE: CAM’s Annual Audited Accounts for F.Y.E. 31/12/2005, Page 12]|
Financial Year End 2005
First and Final Dividend of 2% (less 28% tax)
At this material time, the Plaintiffs will have 10,929,521 CAM Shares
[SEE: paragraph 6]
The total paid up capital of CAM consists of 49,200,000 shares.
|[SEE: CAM’s Annual Audited Accounts for F.Y.E. 31/12/2006, Page 12]|
Financial Year End 2010
First and Final Dividend of 2.5% (less 28% tax)
At this material time, the Plaintiffs will have 43,718,084 CAM Shares
[SEE: paragraph 7]
Interim Dividend of 2.4% (tax exempt)
|[SEE: CAM’s Annual Audited Accounts for F.Y.E. 31/12/2011, Page 1]|
Hence, total dividends due to the Plaintiffs for F.Y.E. 31.12.2010 are:
(61) It needs to be explained that paragraph (6) above had referred to a Bonus Issue Exercise in 2004 which calculation on the further increased shareholding of the Ps is as follows:
“6) After listing, CAM went through a Bonus Issue Exercise in 2004. Under this exercise, every holder of five (5) CAM shares gets one (1) CAM share.
[SEE: Bursa Malaysia, CAM Recourses Berhad’s Company Announcements]
5 CAM shares get 1 CAM bonus shares 9,107,934 CAM shares will get 1,821,587 CAM bonus shares
Hence, the Plaintiffs’ holdings of 9,107,934 CAM shares will get 1,821,587 CAM shares bringing the Plaintiffs’ holdings after the Bonus issue Exercise to:
|10,929,521 CAM shares”|
(62) Likewise, it needs to be explained paragraph (7) above had referred to a Share Split Exercise in 2004 where the further increased shareholding of the Ps was split as follows:
“7) After listing, CAM also went through a Share Split Exercise in 2004. Under this exercise, every one (1) CAM share is split into four (4) CAM shares.
[SEE: Bursa Malaysia, CAM Recourses Berhad’s Company Announcements]
Hence, the Plaintiffs’ holdings of 10,929,521 CAM shares will be split into:
|10,929,521 x 4 = 43,718,084 CAM shares|
“At the quoted price of RM0.225 per CAM share,
43,718,084 CAM shares are worth:
43,718,084 x RM0.225 = RM9,836,568.90 RM9,836,568.90”
(63) Thus the Ps had arrived at the total loss of RM17,956,049.03 derived from the proceeds derived from sale to Bumiputra shareholders plus value of shares after splitting plus bonus paid before and after listing. From that Mr Wan for the Ps agreed that the consideration of RM5,970,000.00 received under the Composite Agreements should be deducted giving a total loss of RM11,986,0499.03.
(64) That was not the end of the matter as the Ps still would have the 43,718,084 shares with them in CAM and taking the current price of RM0.33 per share they could still realise RM14,426,967.72 from its sale.
(65) However, the nature of the business relationship of the Ps and the Ds must not be overlooked. It was more a case of a quasi-partnership where each side have to be involved in different aspects of the business as directors holding executive positions and being responsible for the growth of the company. It cannot be equated with passive investors in a public listed company who might have bought the shares upon listed or subscribed for it 10 and then sit passively as uninvolved investors and wait for the dividend yield. Had the Ps held on to their shares and proceeded with the Ds for listing, both P1 and P2 would be expected to be involved in the running of the business as indeed was required of D1 and D2.
(66) Learned counsel Mr Wan for the Ps readily admitted that the shares in the listed entity CAM have been strengthened by the time and effort spent by the Ds in building up the company without any contribution by the Ps. His stand was that one should then be guided by the factors discussed in Fraser Edmiston Pty Ltd v. AGT (Qld) Pty Ltd  2 QD Reps which espouses a flexible appl icat ion for assessment of equitable damages to meet the justice of the case. He tried to prevail upon this Court to adopt what is commonly referred to as an assessment of damages “on a jury basis” as referred to in p 13 line 50 of the Report . The problem with such an assessment is that it introduces too much subjectivity into the exercise of assessment of damages and is susceptible to a wide range of factors that may well end up with wide disparities depending on the “jury”.
(67) I had thus rejected this mode of calculation of damages in lieu of rescission as it imports into its calculation too many imponderables. It reaps the benefits of hindsight without the corresponding prior sowing against the risks that is attendant in all business ventures that involves the input of labour in efficient management and manufacturing and leadership in strategic planning and marketing. I accept the fact that the Ds have put in significant efforts and assumed financial risks in furnishing personal guarantees for banking facilities ranging from RM11 million to RM17.5 million and in the acquisition of new businesses. (See p 17 of D1’s affidavit in Enclosure 124 and PWC Report at pp 34-36 of Exhibit LCY-6).
(d) Directors’ Remuneration
(68) It was also argued by Mr Wan for the Ps that all fees, emoluments and benefits-in-kind of the Directors of CAM from year ending 1999 to the present should be taken into consideration in calculating what the Ps had lost out had they held onto their shares.
(69) I do not agree. As stated, P1 and P2 in not having to serve as Directors were also correspondingly not required to invest time and energy with the hardwork and corresponding headache in running a public listed company. The time and energy saved can be channeled into other businesses and investments of P1 and P2. There was also the cancellation of P1 and P2’s guarantee to the Banks and with that a complete peace of mind here where their investments in CAM is concerned save for the fact that it should not make losses or lose profitability.
(70) It would be more than reasonable in assessing damages in lieu of rescission to take into consideration what would be a fair price of the shares for the purposes of the listing exercise and the price as stated in the Listing Prospectus would be a fair and reasonable guide without the need to take into consideration the many “what-ifs” in what if the company had suffered losses, what if there were no dividends declared, what if there were bonus issues and share split. Its fairness and reasonableness also lie in the fact that had the Ps been involved in the running of the company as they would invariably be had they held onto their shares, there would be a corresponding expenditure of time and energy on their part which time and energy saved had been invested and channeled into other business ventures or investments.
(71) It is said that we know the price of everything but the value of none. In assessing damages we have to start from the price we know and then consider whether extrapolation is necessary to determine the value that one has lost.
(72) I appreciate that in certain cases as highlighted in World Wide Fund for Nature v World Wrestling Federation Entertainment Inc  1 WLR 445 at 475, paragraph 59 and in A.G. v Blake  1 AC 268 at 282, the Court may take into account the benefit that the wrongdoer had gained as a result of the breach as it observed as follows:
““It is equally well established that an award of damages, assessed by reference to financial loss, is not always ‘adequate’ as a remedy for a breach of contract. The law recognises that a party to a contract may have an interest in performance which is not readily measurable in terms of money”
And at page 283,
“…In a suitable case damages for breach of contract may be measured by the benefit gained by the wrongdoer from the breach. The defendant must make a reasonable payment in respect of the benefit he has gained.””
(73) However, in the current factual matrix, to peg the price of the enlarged shareholding of the Ps just before listing without subjecting it to the uncertainties that may come with all businesses that are listed and correspondingly without reaping any windfall for no effort that it needed to put into the business should the business become propitiously profitable, would in the circumstances of the case be reasonable, fair and equitable.
(74) The price of RM1.36 x 11,637,934 (the number of shares of the Ps before listing) = RM15,827,590.24 would be a reasonable value for the shares of the Ps had they held on to it as they could have if the Composite Agreements had not been executed. To follow the vicissitudes of the shares through the vagaries of the market which could well prove volatile would be to venture into the realm of probabilities and possibilities which might either be unfair to the Ds or unfair to the Ps as the case may be. In the case of the former, to reward the Ps without the need to weather risks and expend effort and energy on their part would be unfair to the Ds. Conversely to punish the Ps for what could not have been any interference from them in the running of the business as they were no longer holding executive positions with controlling shareholding would be unfair to the Ps.
(75) A formula must be found where the Ps would be cushioned from the losses suffered by the company after listing and correspondingly the Ps cannot be capitalising on the profits after listing if the company had done well through the efforts of the Ds. That formula is to be found in the share price as valued by the merchant bankers for the listing exercise in the listing prospectus, made available to the investing public’s consumption just before listing, with no contemplation of litigation in mind.
(76) The price of the Ps’ enlarged shareholding is calculated to be RM15,827,590.24. From that amount is to be deducted RM5,970,000.00 being the consideration already received by the Ps from the Ds giving the sum of RM9,857,590.24.
(77) As pointed out by Mr Mohanadas for the Ds it is accepted that in a restitutionary claim the Court must make allowance for the benefits that the party seeking restitution has obtained. As stated in Clough v London and North Western Railway Co  LR 7 Exch 26:
“No man can at once treat the contract as avoided by him, so as to resume the property which he parted with under it, and at the same time keep the money or other advantage which he has obtained under it.”
(78) The position is also codified in our Contracts Act 1950 in section 65 thereof which reads as follows:
“Consequences of rescission of voidable contract When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder from another party to such contract, restore the benefit, so far as may be, to the person from whom it was received.”
(79) It is also consistent with section 37 of the Specific Relief Act 1950 which reads:
“Court may require party rescinding to do equity
On adjudging the rescission of a contract, the court may require the party to whom the relief is granted to make any compensation to the other which justice may require.”
(80) Based on the above principle and as exemplified in the case of Sempra Metals Ltd v Inland Revenue Commissioners  3 WLR 354, the Ds had also asked that interest at 4% per annum should also be credited in their favour for the RM5.97 million paid earlier. However, the Court of Appeal had observed at paragraph 10 of its judgment as follows:
“…..We do not agree that on the facts and in the total circumstances of the case the appellants should be faulted for the delay of 3 years in pursuing their claim and for accepting the full instalments of the Composite Agreements. The evidence when properly read and evaluated disclose that they did not abandon their right to insist on performance of the JSH Agreement, and had elected to pursue the claim in court only when it becomes clear that the defendants/respondents had no intention to proceed with the Agreement.
(81) As such no allowance for interest is necessary to be made in this case bearing in mind to the conduct of the Ds not only in refusing to transfer their shares in JSH to the Ps but also refusing to resign as directors and more reprehensibly in removing the Ps as directors of JSH.
(82) This Court had on 13 October 2014 assessed damages in lieu of rescission at RM9,857,590.24 together with interest at 4% per annum from the date of Writ to realisation in line with the direction of the Court of Appeal. I had also granted costs of RM50,000.00 to the Ps.
(83) However Mr Raymond Mah, learned counsel for the Ds, had subsequently written in to clarify the correctness of the sum calculated based on the formula used by the Court. This was before the draft order had been approved by the parties and sealed by the Court.
(84) Following the said request, it was pointed out that this Court in taking into account the shares of the Ps before listing had inadvertently added unto the Ps’ shares the new 208,990 shares being 40% out of 553,475 shares issued when it was actually issued to SSL, a new investor who had pumped in equipment and machinery into CALuminium. In other words these 208,990 shares were not alloted to the Ps. Mr Wan for the Ps said that the Ps could have taken up the shares if they had wanted to. However the point is that it was taken up by another investor SSL. It does not denude the shares of the Ps or the Ds in any way.
(85) To now attribute some value to the Ps whether by way of 40% of the 552,475 shares or to ascribe a premium of RM0.36 per share to the Ps, would be to give the Ps that which the Ds did not in any way derive any benefit from.
(86) I agree that that increase of 208,990 shares should have been excluded from the computation exercise in calculating damages. Therefore the final sum should minus the following: 208,990 x 9.63 x 1.36 = RM2,737,100.23 In summary, the final sum then would be as follows: RM9,857,590.24 – RM2,737,590.24 = RM7,120,490.01. Interest shall be at 4% per annum from date of the Writ to full realization. Both parties had confirmed the arithmetical correctness of the calculation but reserved their right of appeal on the method used and the basis for the calculation.
The court awarded the plaintiffs damages at a sum of RM7,120,490.01, with interest at 4% per annum from date of the Writ to full realization and costs of RM50,000.00.
Reported by Raymond Mah & Rachel Goh; Edited by Felicia Tang; M/s MahWengKwai & Associates